Dax Mechanical Trading System

Here is my own Dax mechanical trading system I wrote late last year (2008). Very similar to my Hooya bands concept.

Enjoy

Dax 25 is a very straight forward mechanical trading system that allows the trader to place a order to buy or sell with both stops and limits in place and leave the position in place until end of day. It is called Dax 25 because is uses both a 25 point stop and a 25 point limit. This gives the system a 1:1 Risk to Reward ratio, which along with the positive strike rate is how the system is profitable.

Below outlines the simple steps of knowing which orders to place and in which direction:- Trading Dax 25

Step 1 Identify the open price of the Dax index. This is shown on my charts below as white line. This is probably most key part of the system as you need to make sure you have the correct price level.

If you are trading using spreadbetting do not use the price quoted by your SB at the open as this will not only be based on futures prices but most likely will not show the first tick of day on the index which is what we need to determine the actual open price level. Best to use a Dax chart from a metatrader supported data feed.

Step 2

Once you have the open price level. Calculate two new price levels, one at Open Level +25 points and the other Open Level -25points. Thus in essence you have two bands 25 points away from the the open price level. Now you have all 3 price levels you need to trade.

Step 3

Assuming the market is open and you have your price level bands, you now wait for one of the bands to be hit. This usually happens within the first hour of the session so be ready for it.

Once a band has been hit we move to place our orders. If the lower band has been hit we place a buy order at the Open price level and place our limit to close for +25 at the top band and place our stop at the the lower band.

If the upper band has been hit we place a sell order at the Open price level and place out limit to close for +25 at the bottom band and place our stop at the upper band. So the we wait for the price to return to the open level to open a position.

Once in a position do nothing. Leave the orders to play out. There will be quite a few days where your orders don’t get triggered to open a trade, just make sure you cancel them at the end of day or if you have option with your brokers/ SB provider, make sure they are only good for the day and get cancelled automatically.

Also you need to check back at the end of day to make sure that you are not in a position that has not been stopped or limited out. There are only a few days in the sample period where this happened but best to check. Again your initial buy/sell order maybe able to be placed with a close at the end of day instruction but that will depend on your provider. _______________________________________ So that is it. A very straight forward trading method which is easy to trade and which does not require any decision making on when to open/close a position. Below, you can see two actual trades and the trades that were triggered and how they were closed out.

Chart 1 shows a trade that was triggered to buy the open price level with the trade being closed out for 25+ points profit.

Chart 2 shows a trade that was triggered to sell the open price level but which was stopped out for -25.

Chart 1

Chart 2

There are two things I would like to highlight. Firstly is, that as it is a mechanical system any changes you may make to it, like deciding to close a trade early, will effect the outcome of the system as a whole. By all means take the idea and play with it and change it if you wish but the results suggested are based on a trading it as it is above.

Personally, I am currently looking at increasing the limit target to 30pts and also taking a second trade if stopped out. Although I do not have the stats on this at the moment, it might be something you might want to look into.

Secondly, is the old adage of only trade with what you can afford to lose. Despite what some people would like you to believe trading by nature is a game where you are exchanging money for risk. If you do not want to take on the risk do not trade. I have traded in one form or another for the last 6 years and my eyes are wide open to the risks involved. Make sure you are. This system whilst profitable at the moment may not be in the future. There are no guarantees in this game. The reason why I like to trade these mechanical type systems is that they are relatively consistent over a basket of trades but you have to be able to ride out the bad times as well as the good one. So trading full margined on each trade for example will not result in a happy ending.

I hope I have shown you a simple way to trade and wish you all the best in your trading.

Just keep watching it and if you can back test is manually on your charts and see what sort of fluctuations in earnings you get so you have a good idea of the ups and downs of the system.

Also it works on the fact that you can take the majority of trades. So if you know you are not going to be able to take 3 trades because you are busy doing something else you may want to wait until the running total for the the month is at breakevens or less before you jump in again. Just a thought.

Now you have the basic concept of it. Maybe do some testing using a tighter stop compared to target. i.e try and get the R:R to be more in your favour. Strike rate may drop but earnings over a basket of trades may increase.

The only other issue with systems like these is that you do get breakeven months sometimes. So you may want to trade something else as well if you need to earn every month,

Hi Jason, just wanted to say that the system is doing pretty weel. I haven’t had a negative week since simulating with it. This week was very nice with 3 positive and 2 null days, so a 375 euros per contract. Not bad at all!

I am really thinking of going real with it, do you have any other strategys or systems to complement this? And any last chance advice? :)

Just got to find a decent ‘indicator’ (could be anything even the day of the week) that will give you a 50%-60% chance of choosing the right direction for the day and you will make money in my opinion. But as always do your own research, test amd test again.

Hi i found out about this system through a forum, sorry just got on to see about this system, maybe stupid question ,but what are the settings ie candlestick? 1 minute candle etc? manythanks anyone is this sytem still doing well………….

The chart period doesn’t really matter as long as you can see intraday price action. I think the charts above are 5mins bar charts.

Which forum did you hear about this system on?

I personally haven’t been trading for a good few weeks as I had spent quite a bit of time on this site but I definitely will be pulling this out when I get back into it. Will back test for 2010 and see how it performed.

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